July 24, 2024

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Home sales surge as buyers make peace with elevated mortgage rates

4 min read

Sales of previously occupied US homes gained momentum in February as buyers accepted the new normal of higher mortgage rates.

Existing home sales surged 9.5% in February from the month before to an annualized rate of 4.38 million, the National Association of Realtors (NAR) reported Thursday. That was almost 6% higher than a year earlier and marked the largest monthly increase in a year.

The median home price also increased almost 6% to $384,500, an all-time high for the month of February and marking the eighth consecutive month of year-over-year gains.

Still, sales were down from February 2023, signaling some tightness in the market. On the bright side, there were 1.07 million homes available for sale at the end of February, a gain of 10% from a year ago.

The uptick in inventory is a positive for homebuyers, who have long been dealing with a lack of options on the market. However, most activity seen last month stuck to the upper end, as entry-level homes remained scarce.

“Maybe the absolute low point in inventory is over,” Lawrence Yun, chief economist at NAR, told reporters in a conference call Thursday. “We are seeing more inventory showing up in the market, and consequently, maybe this is one big factor as to why we are seeing an increase in home sales: more choices for consumers.”

Read more: Mortgage rates hover around 7% — is this a good time to buy a house?

A for sale sign is seen in front of a home in Miami, Florida. (Credit: Getty Images)A for sale sign is seen in front of a home in Miami, Florida. (Credit: Getty Images)

A for sale sign is seen in front of a home in Miami. (Credit: Getty Images) (Joe Raedle via Getty Images)

Multiple offers are already here

Homebuyers were more active last month, with some regions even seeing the rekindling of multiple offers despite prices of homes ticking higher. According to the NAR, all four regions registered year-over-year gains in prices.

In the West, existing home sales vaulted nearly 17% from a month ago, and the median price was $593,000, up 9% annually.

Sales in the South jumped by nearly 10% from January, and the median price increased 4% from last year to $354,200.

In the Midwest, home sales surged more than 8% from a month earlier, and the median price was $277,600.

As for the Northeast, sales of existing homes were unchanged from January but were down almost 8% from a year ago. The average price of homes sold was $420,600, up 11.5% from a year ago, the largest year-over-year gain out of all regions.

“The Northeast is somewhat unique in terms of why sales did not increase … simply due to the fact that there’s lack of inventory and presence of large multiple offers happening because of lack of inventory,” Yun said. “The Northeast is actually seeing the strongest price increases. So [demand] can hamper due to the lack of inventory situation.”

Homebuyers are frustrated with affordability

As competition picked up last month, first-time homebuyers were once again pushed to the sidelines.

All-cash transactions accounted for 33% of existing homes sold in February. Individual investors or second-home buyers who bought in cash purchased 21% of homes.

Meanwhile, first-time buyers made up just 26% of sales.

According to the NAR, higher home prices coupled with elevated rates were some factors that muted demand for first-time buyers. Another challenge was the climbing rate of multiple offers from repeat-buyers — some 20% of homes in February were sold over-ask.

Aside from climbing prices, entry-level buyers just didn’t have as many options to choose from. Starter homes remain woefully scarce in the market, as many homeowners remain reluctant to give up their ultra-low rates.

For instance, sales for homes priced under $100,000 were 11% lower than a year ago in February. While homes priced between $100,000 and $250,000 were down 7% annually.

Meanwhile, sales of homes priced between $250,000 and $500,000 were up 3%, and those priced between $750,000 to $1 million increased by 23%. The highest activity was seen in homes priced above $1 million, with demand up 37% year over year, according to NAR.

“Homeowners are in a happy situation with the rise of prices, but homebuyers are frustrated in terms of affordability. It’s much more difficult also because of the lack of inventory and having to face those multiple offer situations,” said Yun.

A home in the Gold Coast neighborhood is offered for sale nearly $6 million in Chicago, where there's been an uptick in interest in the luxury market. (Photo by Scott Olson/Getty Images)A home in the Gold Coast neighborhood is offered for sale nearly $6 million in Chicago, where there's been an uptick in interest in the luxury market. (Photo by Scott Olson/Getty Images)

A home in the Gold Coast neighborhood is offered for sale nearly $6 million in Chicago, where there’s been an uptick in interest in the luxury market. (Photo by Scott Olson/Getty Images) (Scott Olson via Getty Images)

Forget about a return to 3% rates

Sales picked up last month, even as mortgage rates flirted with 7%.

The average rate on the 30-year fixed mortgage was 6.63% at the start of February and surged to 6.94% by the end of that month, according to Freddie Mac. Rates have since declined by nearly a quarter of a percentage point as of March 14, and now sit at 6.87%.

“We are in a new normal for mortgage rates,” Yun said. [Consumers know that] “mortgage rates will not go to 3% again. It will not go to 4%, or even going to 5% may be difficult.”

Gabriella Cruz-Martinez is a personal finance and housing reporter at Yahoo Finance. Follow her on X @__gabriellacruz.

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